Service centers see strong demand in aluminum, steel

U.S. and Canadian service centers are experiencing strong demand, just as they had predicted. Healthy demand from customers pushed aluminum product shipments up in March, the most recent figures available, but optimism also was displayed heading into April.

"Our customers and our competitors are both saying theyre extremely busy. More quotes are turning into actual orders than six months ago," one service center source told AMM.

Overall business activity has improved from last years levels, with monthly reports showing strong increases in service center shipments, some of the largest North American metal processing and distribution companies said.

But as the year progresses, improvements are expected to be slight because a number of factors still worry players in the industry: a depressed construction market, the European sovereign debt crisis and the volatility that typically accompanies a presidential election year.

These concerns were buried beneath the surface of first-quarter shipments. U.S. and Canadian service centers shipped a combined 149,800 tons of aluminum in March, up 4.4 percent from 143,500 tons in February, pushing the first-quarter total to 413,200 tonnes, up marginally from 412,700 tons in the same period last year, according to Metals Service Center Institute (MSCI) data.

Although North American consumers are busy, few have begun restocking, sources said.

"Just from talking to our customers, people are busy but they dont want to forecast too far ahead. They dont want to make commitments too far ahead, but everything they need, they need it right away," the first service center source said. "People are frantic (but) it doesnt feel like anyone is stepping up to the plate to carry inventory."

There is also hesitation in the markets, he said. "Its an election year. Theyll keep pumping juice into the market. I think (business will) continue for the foreseeable future, but there is still uncertainty out there. Europe isnt great, Asia is not growing as quickly as expected and the U.S. still has problems," he said.

But because the MSCIs first-quarter aluminum shipment statistics were outpacing last year, some optimism remains in the market.

In flat-rolled steel plate, service center sources confirmed that business was steady, and while volumes werent back to pre-recession levels they said they were still buying and selling steel on a daily basis. "Its steady. I dont think its crazy, but people are buying," one distributor source said.

"Business is stable. Its not great, (but) its not bad," the owner of warehouses in Michigan and Indiana said.

"Nothing has changed out there. . . . But there is no cause for concern. (Business activity) wont go up 5 or 10 percent, but we are seeing a steady, slow climb in value and tons so far this year. Its building momentum," one southeastern distributor told AMM.

"February was less than January, but it was darn close on a tons-per-day basis. In both January and February, tons shipped in Canada were better than any month except March last year," according to the chief executive officer of a large North American distributor. "We think there is still upward momentum and expect a modest improvement for the rest of the year."

One Gulf Coast steel distributor said that from his standpoint demand was "really good" in the first two months of the year, and he had to replenish tons that he had stocked in December and early January. "Demand is still good, but not great," he said.

"Our inventories are holding, not increasing," the leader of a western Great Lakes company said. "We have a steady booking of orders. Its just a matter of how well pricing holds up after the first quarter."

The Michigan service center operator said he had been reducing inventory somewhat. "We have a good amount of stock, so we are taking a conservative approach," he said. "Competition is so damn keen. Its terrible."

The southeastern distributor said he, too, was keeping inventories lean. "There are too many unknowns, particularly as it relates to what domestic producers will do to stave off foreign competition. We are being very cautious in purchasing," he said.

Earlier this year, some service center executives set the template for the 2012 outlook by holding to some optimistic viewpoints.

"Its clear by now that automotive is outpacing GDP (gross domestic product)," said Lourenco Goncalves, president and chief executive officer of Fort Lauderdale, Fla.-based Metals USA Holdings Corp. "We see more upside than downside potential. We saw improvements in 2011, and even more improvements are expected in 2012."

Those improvements are expected to follow a more traditional seasonal pickup this year after years of volatility. "The typical seasonality of our business is back," Goncalves said.

David H. Hannah, chairman and chief executive officer of Reliance Steel & Aluminum Co., Los Angeles, said he believes that the energy, aerospace and defense, semiconductors and electronics, and heavy equipment end markets will grow fairly strongly. "We think aerospace will be quite a bit better. The build rates are improving on commercial lines like the (Boeing Co.) Dreamliner and (Airbus SAS) A380 that were bogged down in certifications and manufacturing processes. Including defense, its very positive," he said.

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